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Wages Weaken But Expenses Rise

While some have delighted over flat November inflation others, going to the grocery store, taking the subway or hitting the mall, may have noticed that the price of goods has snuck up after all

While some have delighted over flat November inflation others, going to the grocery store, taking the subway or hitting the mall, may have noticed that the price of goods has snuck up after all over the course of the year. While the cost of items changes over time, as we can confirm from stories of ten cent candy bars and ten dollars buying a nice dress, they used to be accompanied by higher salaries. That, however, is no longer the case. The cost of living is rising but earnings are flat.

Between the years of 2000 and 2010, median income in the United States fell 7 percent after adjusting for inflation according to Census data. It’s the worst performance since 1967 and it won’t be getting better quickly. Economists believe that in the next decade wages will only recover 5 percent, staying below pre-recession levels. For people who have entered the work force in recent years, this comes as little surprise. Starting salaries are lower and more lasting than they have been in recent history.  People higher up the board are also enduring stagnant wages and with the cost-of-living increasing, well, it’s as though we’ve received a collective pay cut.

When wages are no longer in line with pricing, Americans, known for their love of stuff, will simply have less of it. Consumer prices are up 3.5 percent in 2011 while wages have scarcely inched higher, around 1.7 percent. Next year, it may not even be that high. With more people entering the work force predicted for 2012, if the current trajectory is any indication, they will do so at lower salaries. More than ever before, people are taking on temp jobs or retail positions that are low paying. Around 40 percent of the total jobs gained in November were in retail.

Even those taking office jobs, though, will be offered lower salaries. In the past a prospective employee may have turned down a job if they believed that the salary would not meet their basic needs; today many people are grateful for any opportunity to make money in their field. Employers, provided they read the news, are well aware of the post-recession attitude change and are taking full advantage. Not only will they offer prospective employees lower wages, they will be more reticent to offer them a raise.

The consequence of trends like this will be more far reaching than just being a little tight on cash. Media outlets have already devoted exhaustive coverage of trends of twenty-somethings living at home for longer, renting instead of buying and enduring a general delayed adulthood.  People are also avoiding major rites of passages like getting married or delaying having children as financial stability seems increasingly elusive. These trends in turn, affect the broader economy, keeping the housing market frozen and minimizing the big ticket purchases that often come with entering the work force and becoming an independent adult. For those higher up the ladder, their pay levels are frozen and while many may have banked on healthier paychecks in the future, raises are increasingly uncommon. This, alongside the fact that inflation is taking a bite out of their wages, is naturally going to minimize the consumer spending that accounts for over 70 percent of the economy.

Beyond young people, established adults who built their families in a time of greater economic vigor are finding their money doesn’t take them too far these days. At the grocery store, some of the most common items have skyrocketed. Meat, dairy and corn have all gone through the roof, making traditional household staples into luxury items. Taking a look back at history, between 1950-1980, a period of strong economic growth and expansion, inflation and wages were consistent with one another. Since then there has been a drop off in which productivity goes through the roof and wages stay relatively consistent, causing a continued widening of the gap and thinning of the wallet.

Earlier in 2012, two members of the Economic Policy Institute, Heidi Shierholz and Lawrence Mishel, published a paper of this trend: the impact on the economy and the causes for the shift. The two point to economic policy that has glorified inexpensive goods for the consumer over healthy wages. Policies, according to their paper, from deregulation of industry to privatization of public services has cause the current conundrum. Eroding attention to labor standards and globalization, particularly outsourcing has also contributed.

Americans have become accustomed to acquiring goods at lower prices and it’s among the primary factors that have allowed wages to stay flat while productivity grows. With Americans willing to accept lower wages out of necessity and unwilling to pay a premium for goods, the work force and the broader economy are in peril. Even now that this disparity and its impact on long-term consumer spending have been revealed, the likelihood that employers can or will begin pay higher salaries or return to former levels of raises is low. Unemployment is still soaring and if a person is not willing to take a lower salary, most businesses can find someone who will. The bargaining power once owned by the American workers has eroded while prices have inflated, meaning our wages are disintegrating at both ends and we’re positioning ourselves to have a quality of life that for the first time is considerably worse than the generation before us.

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